Saturday, March 13, 2010

GST delay delights opposition, baffles analysts

Opposition parties are crowing victory with the delay in tabling the Goods and Services Tax (GST) Bill which analysts say is linked to the Najib Administration’s desire to win elections over balancing the budget.

PAS and Parti Sosialis Malaysia (PSM) hailed Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah’s announcement yesterday to delay the Bill is a victory for the people and chided the government’s excuse of seeking public feedback when pulling the Bill from debate when Parliament opens this week.

“This is a victory for PAS and the Pakatan Rakyat which have united to explain the ramifications of the GST to the people,” PAS vice-president Datuk Mahfuz Omar said last night.

The GST, which would have generated revenues totalling around RM8.8 billion, was due to be introduced in 2011, to replace an existing sales tax as part of measures to reduce Malaysia’s dependence on oil revenues, which currently account for almost half of government income.

Malaysia’s budget deficit hit a more than 20 year high of 7.4 per cent of gross domestic product in 2009, according to government data.

Mahfuz said the opposition have to continue their efforts to prevent GST from being implemented, adding they were against bad financial management by Umno/Barisan Nasional (BN) and not the tax system itself.

He also said Husni need not create excuses about the delay putting the Bill for a second reading after it was first tabled last December.

“If they want to seek public views, they didn’t have to wait until now. It should have been done before the first reading.

“I think Husni and the government are just creating this excuse to cover their weaknesses in planning the GST or were never serious about it or perhaps unable to face anti-GST protests on Monday,” the Pokok Sena MP was quoted as saying by the PAS Harakahdaily news portal.

The Pakatan Rakyat opposition pact — which comprises PKR, DAP and PAS — have called for a protest against the GST when Parliament opens tomorrow but police have warned against any gatherings.

PSM secretary-general S. Arutchelvan echoed Mahfuz views and called for a referendum over the GST rather than just seeking public feedback.

“PSM believes that the about-turn decision by the Government is that BN does not want to risk losing the upcoming elections in Sarawak or the next General elections. The opposition against the GST is growing,” he said in a statement issued this morning.

He said PSM wanted the government to maintain corporate taxes at its current rates and implement a minimum wage act to ensure the growing income disparity be narrowed down.

“But all this efforts will go in vain if we cannot plug the leakages and confront corruption,” he added.

Analysts however said the delay in GST was linked to Prime Minister Datuk Seri Najib Razak’s desire to win the looming Sarawak state election and reverse the unprecedented losses in Election 2008.

The delay in GST signalled the end of meaningful fiscal reforms until after the next elections. Over the past three weeks, the Najib Administration has postponed electricity price rises and ended plans to hike subsidised petrol prices, part of measures planned to reduce a budget deficit that stands at a 20-year high.

It had also effectively delayed announcing its New Economic Model (NEM) when Najib announced a two-stage rollout of the ambitious plan to turn Malaysia into a high-income nation based on innovation and creativity.

Instead of a full announcement in the Invest Malaysia forum at the end of March 30, the prime minister said full details would be disclosed when he tables the 10th Malaysia Plan as the government wanted to seek public feedback for proposals that the dominant Malay majority feel could sideline them.

“They will have to wait for Najib to get a big mandate from the election before he can continue to really push through the reforms,” said James Chin, a politics professor at Monash University in Kuala Lumpur.

The next general election does not have to be held until 2013, but could come as early as 2011 to coincide with elections Sarawak, a government stronghold that supplies 30 of BN’s 137 lawmakers.

Najib vowed last year to reform public finances in order to cut the budget deficit to 5.6 per cent of gross domestic product in 2010 from 7.4 percent of GDP in 2009 and pledged to tackle a subsidy regime that accounted for 15 per cent of all federal government spending in 2009.

Savings from food and fuel subsidies amounted to RM3.6 billion ringgit this year alone under Najib’s budget plans announced in October last year.

A return to economic growth this year, seen at 5 per cent versus a 1.7 per cent contraction in 2009, has reduced pressure on the government to push through with reforms.

“The question is which of these they want to secure — a balanced budget or an election victory,” said Azrul Azwar Ahmad Tajudin, Chief Economist at Bank Islam in Kuala Lumpur.

“This is a policy flip-flop. Back-pedalling will always send the wrong signals to the market and to foreign investors,” he said.

Malaysia has seen its status as a favoured destination for foreign direct investment erode in recent years and recorded RM24.9 billion ringgit of outflows in 2009, according to government data released last week.

Net portfolio inflows were roughly balanced in 2009, in sharp contrast to neighbouring Indonesia which attracted a net US$10.1 billion in the same year thanks to economic reforms.

The Federation of Malaysian Manufacturers (FMM) last week suggested that the government consider a retail sales tax (RST) as Malaysia was not ready for the GST until the average income was higher and income disparity smaller.

Chairman of the Task Force on GST Datuk Lee Ow Kim said the GST was for more advanced and affluent countries where the income disparity was not that big and most people were paying income tax.

“Hence, the government should consider the RST as an alternative which was simpler, less costly for government and businesses to administer but generates the same revenue to the government,” he told a GST conference.

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About Me

Mohd Kamal Abdullah frequently writes in Malaysiakini, MalaysiaToday and in the FORUM column of MALAYSIA CHAT www.malaysia-chat.com. Kamal holds a law degree and was active in Malaysian Politics (a component party of Barisan Nasional) until of late, to concentrate on pursuing a post-graduate law degree in United Kingdom.